What happens if you are a beneficiary and you believe that the estate ought to make a claim against the person who happens to be the executor of the estate?  This is a common scenario.  Often, the person that a will-maker chooses to be their executor is a person who was involved in their affairs during their lifetime, for example under a power of attorney.  This presents opportunity for undue influence, or for the person who later becomes executor to otherwise benefit from their position of control.  In such a case, the beneficiary will want “the estate” to investigate or pursue claims against the executor, but the executor has no incentive to investigate themselves (and is in a conflict of interest).

This is what happened in the recent B.C. Court of Appeal decision of Hoggan v. Silvey 2022 BCCA 176.

In Hoggan, the deceased divided her estate equally among her three daughters.  Two of the sister beneficiaries had concerns about cheques for substantial amounts ($150,000+) that had been made from the deceased during her lifetime to the third sister (“Lorna”) and her husband (“Ray”).  Lorna and Ray had some control over the Deceased’s finances when the cheques were written.  The matter was complicated by the fact that Ray was the executor of the estate (and Lorna was named as alternate executor).

If beneficiaries want a claim to be made on behalf of the estate against the person who is the executor or administrator of the estate, they have two options:

1. Seek removal and replacement of the executor, with the expectation that the replacement executor will bring the claim on behalf of the estate against the removed executor; or
2. Apply for standing to bring a claim on behalf of the estate against the executor.  This is because the executor cannot be expected to sue themselves.

I have previously written about the issue of applying for standing to bring an action on behalf of an estate here.

In Hoggan, the two sisters pursued both remedies: they applied to remove Ray as executor, and they sought standing to bring a claim against Ray (and Lorna) on behalf of the estate.

At the B.C. Supreme Court level, the chambers judge dismissed both applications.

The chambers judge refused to remove Ray as executor because the deceased had a close and trusting relationship with him and wanted him to be executor, and the estate funds were held in trust.

With respect to the application for leave to bring proceedings on behalf of an estate, the test is set out at s. 151 of the Wills, Estates and Succession Act.  If the executor will not commence proceedings on behalf of the estate, a “specified person” may apply for leave to commence proceedings on behalf of the estate.  The test is set out at s. 151(3):

(3) The court may grant leave under this section if

(a)   the court determines the specified person seeking leave

(i)    has made reasonable efforts to cause the personal representative to commence or defend the proceeding,

(ii)    has given notice of the application for leave to

(A)   the personal representative,

(B)   any other specified persons, and

(C)  any additional person the court directs that notice is to be given, and

(iii)   is acting in good faith, and

(b)   it appears to the court that it is necessary or expedient for the protection of the estate or the interests of a specified person for the proceeding to be brought or defended.

The chambers judge held that the requirement at s. 151(3)(b) was not met, which requires that the proceedings be necessary or expedient for the protection of the estate.  To meet this requirement, three elements had to be established (as will be seen below, the Court of Appeal took a different view as to the elements required):

1. There is an arguable case;
2. The potential relief outweighs the inconvenience caused to the estate; and
3. The proceeding is in the best interests of the estate.

The chambers judge held that:

1. There was no arguable case.  There was no evidence of undue influence, only “mere allegations and suspicion”;
2. The relief sought was outweighed by the prejudice, in light of the limited value of the estate, the lawyers’ fees to litigation the claim, and the cost and delay if the claim was pursued; and
3. Given the substantial cost of the litigation and the weak case, it was not in the estate’s best interest to grant leave.

The two sisters appealed the dismissal of both applications.

The Court of Appeal dismissed the appeal of the dismissal of the application to removal Ray as executor.  The chambers judge did not err in the exercise of her discretion to not remove Ray at this junction.  Ray was to remain as executor.

However, the Court of Appeal allowed the appeal from the dismissal of the leave application.  The two sisters were granted leave to commence a proceeding on behalf of the estate against Lorna and Ray.

The Court of Appeal looked at the actual language of s. 151(b)(3):

(b)   it appears to the court that it is necessary or expedient for the protection of the estate or the interests of a specified person for the proceeding to be brought or defended.

The Court focused on the disjunctive “or”, which means that the section is to be read as follows:

(b)        it appears to the court that it is necessary or expedient for the protection of the estate

or

that it is necessary or expedient for the protection of the interests of a specified person for the proceeding to be brought or defended.

This means that while the best interests of the estate may be considered, they are not necessarily a factor when the interests of a specified person are raised.

With this in mind, the Court of Appeal concluded that:

• The chambers judge erred when she concluded there was no arguable case.  Whether there is an “arguable case” is a very low threshold, and the two sisters met it in this case;
• The chambers judge placed too much emphasis on the best interests of the estate, when the application was brought to protect the interests of a specified person, not those of the estate.
• Ray refused to make inquiries as to the cheques (and would be in a conflict of interest if he did), and so the only way to protect the interests of a specified person (in this case, the two sisters), was to grant them leave to commence proceedings.

This case confirms that beneficiaries ought to be given the opportunity to bring claims that they wish to pursue if the claims are in their interests, even if the claims may not necessarily be in the interests of the estate as a whole.